Corporate Finance

Question 1: The attached table contains a summary of (daily) data on two stocks and the market. a) Compute the expected returns and standard deviation of a portfolio composed by 80% WMT and 20% MRK. Comment on your results. b) Compute the beta for WMT and MRK. c) Discuss total risk, diversifiable and undiversifiable risk for the two stocks, the portfolio - part a) above - and the market.

Corporate Finance

Question 1: Assume there are two companies operating in the same industry. The two companies are almost identical. The only difference is their capital structure. Company UU has only equity while company LL has 30% of debt and 70% of equity. Further assume that both companies have the same expected net operating income of $1,000. We make a further assumption that this stream of income will last forever. The required rate of return for both companies is 5%. a) According to the Modigliani-Miller model, what is the value of company UU and company LL? Explain. (5 points) b) Assume that the capital structure of company UU changes. The new capital structure is such that company UU has ... click for more

Constant-Growth Model

Here are data on two stocks, both of which have discount rates of 15 percent: Stock A Stock B Return on equity 15% 10% Earnings per share $2.00 $1.50 Dividends per share $1.00 $1.00 a. What are the dividend payout ratios for each firm? b. What are the expected dividend growth rates for each firm? c. What is the proper stock price for each firm?

Dividend Policy

Dividend Policy. Here are several assertions about typical corporate dividend policies. Which of them are true? Write out a corrected version of any false statements. a. Most companies set a target dividend payout ratio. b. They set each year's dividend equal to the target payout ratio times that year's earnings. c. Managers and investors seem more concerned with dividend changes than dividend levels. d. Managers often increase dividends temporarily when earnings are unexpectedly high for a year or two. Dividend Policy. For each of the following four groups of companies, state whether you would expect them to distribute a relatively high or low proportion of current earnings and whet... click for more

Why invest in Hewlet Packard?

What is a good rational, financial case for investment in HP?